VECO earnings call analysis

NASDAQ:VECO Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings and welcome to the VECO First Quarter 2026 Earnings Call. At this time, all participants are in listen-only mode. It is now my pleasure to introduce your host, Alex Delacroix, Head of Investor Relations. Thank you.

You may begin. Alex Delacroix | Head of Investor Relations

Thank you and good afternoon, everyone. Joining me on the call today are Bill Meller, VECO's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. The earnings release and slide presentation to accompany today's webcast is available on the VECO website. To the extent that this call discusses expectations for future revenues, future earnings, the timing and expected benefits of the proposed transaction with Excellus, market conditions, or otherwise make statements about the future, these forward-looking statements are based on management's current expectations and are subject to the risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K Annual Report and other FEC filings. FECO does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements. Unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation. Please note that we will not be addressing questions related to our pending merger with Excellus. We urge you to read the joint proxy statement relating to the transaction with Excellus. With that, I would now like to hand the call over to our CEO, Bill Miller.

Bill Miller | Chief Executive Officer

Thank you, Alex, and thank you, everyone, for joining us today. Ricoh executed well in the first quarter and believe we're strategically positioned to benefit from the evolving semiconductor landscape, driven by artificial intelligence and high-performance computing. Reviewing our first quarter results, revenue was $158 million, non-GAAP operating income was $9 million, and non-GAAP diluted earnings per share was 14 cents, all within our guidance ranges. Now let me take a moment to highlight our top five key takeaways for the quarter. First, we're poised to benefit from the significant industry inflection driven by the global build out of AI infrastructure. FICO is well positioned across our portfolio with highly differentiated process equipment aligned with high growth opportunities. Second, order activity that accelerated in the second half of 2025 continued into the first quarter of 2026, and our pipeline of new opportunities continues to expand. Third, as it pertains to the compound semiconductor market, a stronger than expected opportunity has emerged for VECO to capture multi-year revenue in the production of indium phosphide lasers. This is a result of the broader transition from copper to optics within data centers over the next few years for increased speed and bandwidth to meet the scale-up needs of the AI landscape. This opportunity for VECA spans across multiple products, particularly for epitaxy and laser facet coatings, which I will provide more details on later in the call. Fourth, from an operational standpoint, we're expanding our manufacturing footprint and capacity to support increasing customer demand and enable timely deliveries. Lastly, as a result of accelerated bookings activity and ongoing customer engagements, We've increased visibility with significant orders for delivery well into 2027. Overall, we believe VECO is well-positioned for durable, multi-year growth driven by AI infrastructure and high-performance computing, and we remain focused on disciplined execution to deliver long-term value. Before I move to the next slide, as a brief reminder, we continue to make progress on our proposed merger with Excellus. The transaction has been approved by shareholders of both companies and all regulatory approvals have been received other than antitrust approval in China. We remain engaged with the authorities in China and continue to expect the transaction to close in the second half of 2026. Integration planning is progressing well and we remain excited about the strategic fit and long-term potential for value creation. Moving to the next slide, I'll discuss VECO's critical role in the semiconductor manufacturing landscape, which represents the majority of our revenue. Capital spending is being driven by AI investments and is becoming increasingly concentrated at the leading edge areas where VECO is differentiated in technology. In logic and foundry, VECO has a longstanding and trusted position supporting advanced annealing applications across leading nodes. Our LSA platform continues to be a production tool of record, at all three Tier 1 Logic customers, driving repeat business and strong customer engagement, pushing towards more complex device structures with low cost of ownership. At the same time, our next generation nanosecond annealing platform is progressing through evaluations at Tier 1 Logic customers, addressing critical low thermal budget applications such as contact annealing, materials modification, and 3D device integration. These evaluations are advancing well, and we're anticipating an additional evaluation tool shipment to a third Tier 1 logic customer in the coming months. Expanding our penetration within our memory customers within the semiconductor market remains one of our most important strategic priorities. The transition toward AI-centric architectures, high bandwidth memory, and increasingly complex stack devices is driving new thermal and materials requirements. where we believe VECO's technologies provide a clear advantage. During the first quarter, we continue to make solid progress with our top tier one memory customers. In addition to serving as the production tool of record at a leading HBM supplier, we're advancing our LSA evaluation system at a second tier one DRM manufacturer with the potential for initial pilot line and high volume manufacturing orders in 2027. We're also extending our memory opportunity through ion beam deposition. Multiple IBD300 systems remain under evaluation as leading DRAM customers, with activity extending throughout 2026. The systems enable low-resistance film deposition for advanced DRAM bit-line metallization, providing an additional pathway to expand our served available market. Beco remains a market leader in ion beam deposition for EUV mass clients, a critical enabling technology as logic and memory customers expand EUV adoption and prepare for high NA lithography. We also have broadened our exposure to EUV telophiles, which are increasingly required to protect these critical masks as EUV usage scales. Advanced packaging, supported by our wet processing and lithography tools, continues to be a significant revenue driver from AI-related demand. As we discussed last year, our advanced packaging business more than doubled year over year, reflecting strong customer adoption and accelerating capacity investments. During the first quarter, we secured major volume orders for our wet processing systems from leading OSEC customers, supporting high volume manufacturing of next generation AI accelerators built on 2.5D advanced packaging architectures. These systems are scheduled to ship throughout the remainder of 2026 and into the first half of 2027, providing strong revenue visibility. To support this growth, we're continuing to expand our manufacturing footprint and production capacity, positioning the business to meet sustained customer demand as advanced packaging plays an increasingly critical role in AI infrastructure. As we turn to the next slide, we outline our forecast served available market within our semiconductor segment through 2030. This outlook continues to be driven by sustained investment in AI and high-performance computing. In annealing, we project the SAM to be $1.3 billion by 2030 as devices continue to shrink and shallower and more precise anneals are required to improve performance. These trends support long-term opportunities for both LSA and next-generation NSA platforms. Next, In ion beam deposition, our IBD300 platform for low-resistance metals, together with our leadership position in IBD EUV mask lengths, as well as the emerging opportunity in pellicles, where we're a production tool of record at a leading customer, all represent meaningful market opportunity and total a SAM projection of $500 million by 2030. As devices become more power-constrained and EUV adoption broadens, the opportunities for our technologies continue to increase. Finally, in the back end semiconductor process, our advanced packaging business for our wet processing and lithography tools continues to expand rapidly and the SAM is projected to reach $1 billion by 2030. We continue to demonstrate our ability to support our customers high volume manufacturing ramps driven primarily by AI. Moving to the next slide, I want to spend time discussing our stronger than expected momentum in the compound semiconductor market. We're seeing a clear industry inflection point underscored by NVIDIA's recent investments in optical networking leaders. In silicon photonics, the industry is transitioning from copper interconnects to co-packaged optics as AI data centers require higher speeds, greater bandwidth density, and improved power efficiency. Indium phosphide laser manufacturing is a critical component of this shift and a foundational technology for next-generation AI optical infrastructure. As the industry transitions towards future capacity requirements, we believe this represents a growth opportunity of approximately $2 billion over the next several years. NICO plays a critical role across multiple steps of the indium phosphide laser manufacturing process, and we're seeing rapidly accelerating order demand across several of our product lines. Beginning with Epitaxy, MOCVD is a critical step, and we're seeing increasing orders for our Lumina MOCVD Indium Phosphide platform as leading photonics customers expand capacity to support AI-driven data center growth. We also support downstream process steps with our wafer etch and wafer storm wet processing technologies for advanced etching and surface preparation. What I would like to highlight for investors is the laser facet coating and epitaxy opportunities are similar sized and significant for the manufacturing of indium phosphide lasers. Our SPECTR ion beam deposition system, designed for the critical laser facet coating step, is essential to the process. Beco is a market leader in ion beam deposition and is differentiated from traditional approaches such as e-beam evaporation, ion-assisted deposition, or PVD. Compared to other approaches, the SPECTR ion beam deposition tool delivers low-loss optical films with tight control of thickness, uniformity, and reflectivity, precision that is required for anti-reflective and highly reflective plastic coatings on indium phosphide lasers. We have engagements with industry leaders that will drive the growth of our SPECTR IBD business in 2027 and beyond. As announced in today's press release, we received over $250 million in orders from multiple customers for our MOCBD, wet processing, and ion beam deposition tools to support the manufacturing of indium phosphide lasers, with deliveries starting in 2026 and significantly accelerating in 2027. A large portion of these orders is for our Spectre IBD system from leading suppliers of next-generation 800 gig and 1.6 terabyte optical transceivers for hyperscale customers. This significant order activity underscores the long-term value of our ion beam deposition technology leadership and our expanding role in this rapidly growing market. We have longstanding partnerships with our customers, spanning more than two decades. and we are well positioned across our multiple differentiated products to meet their growing needs in silicon photonics. Our focus remains on supporting customer production ramps, executing early deployments, and expanding our footprint to meet customer demand. With that, I'll flip to the next slide to share our projected served available market within the compound semispace. In silicon photonics, specific to the manufacturing of indium phosphide lasers, We project our SAM to be $700 million in 2030. As we discussed on the previous slide, demand is accelerating across several of our products driven by AI data centers. Our Lumina MOCVD batch platform, WaferStorm and Etch, and our Spectre ion beam deposition for the laser facet coatings are gaining significant traction. Other photonics driving SAM growth include red micro LEDs, solar cells for low Earth orbit satellites, and ARVR applications. Additionally, a global optoelectronics solution provider accepted and qualified our Lumina Plus MOCBD system for high volume arsenide phosphide production, including for use in micro LEDs. We expect these other photonics applications, SAMP, to total $550 million by 2030. In GaN power, We project our same to be $250 million by 2030, as we continue to see strong long-term drivers tied to AI data center power efficiency, electrification, and high power density applications. Importantly, at a leading power IDM customer, we have an evaluation for our Propel 300 system in place, and we received the pilot line order for a multi-chamber system, which we previously announced at the end of 2025. This represents an important validation point as customers move from development to early production. Looking ahead, as this customer ramps and finalizes long-term capacity plans, there is potential for additional system orders in the second half of 2026 for delivery in 2027. In the next several years, we expect our compound semiconductor served available market opportunity to meaningfully grow as AI, power efficiency, and advanced connectivity continue to reshape the industry. I would now like to hand the call over to John to walk through the financials.

John Kiernan | Chief Financial Officer

Thank you, Bill. Revenue came in at $158 million, slightly below the midpoint of our guidance in previous quarter. Our semiconductor business reported $109 million, with a decline of 1% and comprising 69% of revenue. Revenue in the semiconductor market was largely driven by laser annealing systems for leading boundary logic and memory customers and web processing systems for advanced packaging. Compound semiconductor revenue totaled $19 million, a 6% decline from the prior quarter, totaling 12% of revenue. Data storage revenue was $10 million, flat to the prior quarter, representing 6% of revenue. Scientific and other revenue declined 16% to $20 million, comprising 13% of revenue. Turning to the quarterly revenue by region, revenue from Asia Pacific region, excluding China, was 57%, no change from the prior quarter. Sales were driven by leading semiconductor customers in Taiwan for our laser kneeling systems and wet processing systems for advanced packaging. The U.S. accounted for 20% of revenue, an increase from the previous quarter, primarily from semiconductor customers. Our China portion was 13% of revenue, a decrease from the previous quarter. EMEA and the rest of the world accounted for 10% of revenue. Turning to the first quarter non-GAAP results. First quarter gross margin came in at 36%, and operating expenses totaled $49 million. Income tax expense was approximately $1 million, resulting in an effective tax rate of approximately 11%. That income was approximately $9 million, and diluted EPS was 14 cents on 62 million shares. Moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $383 million, a decline of $7 million. From a working capital perspective, Our accounts receivable increased by $40 million to $151 million. Inventory increased by $7 million to $282 million. And accounts payable increased by $5 million to $60 million. Customer deposits included within contract liabilities on the balance sheet increased $19 million to $69 million. Cash flow from operations totaled $8 million. And CapEx totaled $5 million during the quarter. Next, I'll turn to our second quarter non-GAAP outlook. Second quarter revenue is expected to be between $170 and $190 million. Gross margin is expected to be between 38 and 40 percent. We expect OPEX between $52 and $55 million, net income between $12 and $21 million, and diluted EPS between 20 and 32 cents on 64 million shares. Based on our current visibility, we're reiterating our full-year 2026 revenue guidance between $740 and $800 million, with growth accelerating in the second half of the year, as well as reiterating our diluted non-GAAP EPS between $1.50 and $1.85. I'll now provide additional commentary for each of our markets. Beginning with the semiconductor market, in 2026, we expect strong growth from our Tier 1 customers driven by AI and high-performance computing, more than offsetting declines in the mature node China business. Additionally, our advanced packaging, web processing systems are forecasted to contribute to revenue growth as customers increase manufacturing capacity to support AI workloads. In the compound semiconductor market, we see strong growth in silicon photonics, particularly for Indian phosphide laser manufacturing driven by AI data center demand. We are also seeing emerging opportunities for low Earth orbit satellites, micro LEDs, AR, VR applications, and GaN power. We have received significant orders in the first quarter across this market, which is driving meaningful revenue growth into 2027. In data storage, we secured orders in the second half of 2025 and experience continued order activity in 2026 for our IMD equipment. We are seeing increase in AI-driven demand for higher capacity HDDs, supporting investments in capacity and new technologies such as Hammer. Customer engagement remains strong with our business fully booked in 2026 and extending into the first half of 2027. As we look ahead, we are seeing continued acceleration for several of our core markets supported by increased customer engagement, expanding pipelines, and strong order visibility. Our focus remains on disciplined execution as we support customer production ramps and deliver against the next phase of growth. I would now like to turn the call to the operator for Q&A.

Operator | Conference Operator

Thank you. We will now be conducting a question and answer session. As a reminder, given the pending merger with Axalis, the VCO management will not be addressing questions related to the transaction. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star two If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Let's wait for a moment while we pull for questions. Our first question comes from Dennis Hatchinan with Needham and Company.

Please state your question. Dennis Hatchinan | Analyst at Needham and Company

I appreciate it. Thank you. So maybe we can start with this $250 million order with the orders beginning in 2026. Could you tell us maybe which quarter would you expect us to start, Q3 or Q4? And then at what point in 2027 do you think this will kind of hit its revenue quarterly peak?

Bill Miller | Chief Executive Officer

Yeah, Dennis, I would say we'll start shipping against those $250 million plus of aggregate orders Dennis Hatchinan | Analyst at Needham and Company: in the third quarter uh but i would say uh probably the most significant ramp will probably start in q127 great and then um for these systems with the lumina for the spectra and for the wafer retro kind of what are your current lead times and what do you think your maximum capacity is to meet demand for these systems on an annual basis Bill Miller | Chief Executive Officer: We have plans to increase our Spectre IBD capacity about 10x from its kind of base level we're at today. It's starting to hit that kind of level in early 27, and we're looking at future capacity needs to potentially double that again. And in wet processing, We're looking to add some expansion capacity to our existing facility as well as looking to an outsourced partner contract manufacturer in Southeast Asia for further capacity expansion.

Dennis Hatchinan | Analyst at Needham and Company

Great. Thank you. And then my final one is about gross margins. So it looks like we came down a little bit to 36.2 from 37.7. Is this predominantly due to mix, like heavier advanced packaging, or maybe were there some other variables contributing?

John Kiernan | Chief Financial Officer

Yeah, I think as specifically to Q1, one of the factors that, you know, contributing is that we had, you know, one less system, LSA system to a China, you know, customer. We got recently informed by BIS that that customer would require a license to ship to certain fabs for that customer. So that had about an $8 million impact on the top line for Q1 and also put us outside, as you mentioned, the gross margin, you know, guidance range.

Dennis Hatchinan | Analyst at Needham and Company

Well, great. That's it for me. Congratulations on that big order. Thank you, Dennis.

John Kiernan | Chief Financial Officer

Thank you, Dennis.

Operator | Conference Operator

Our next question comes from David Dooley with Steelhead Securities.

Please state your question. David Dooley | Analyst at Steelhead Securities

Yeah. Excuse me. Thanks for taking my question. A few other questions on the significant order activity. I was wondering, you kind of addressed it, but it sounds like there are like three tools involved in the big order here. And are they equally split or, you know, could you just kind of talk about the volume of each tool of the $250 billion order? And then as far as uh the ramp up of this business is this uh did you take this business from another competitor and um you know so i'm kind of curious about the competitive dynamics of this and are you sole sourced or are you sharing the business yeah dave let me let me give you some color here because we don't really talk haven't really historically talked a lot about uh the indium phosphide solutions that we have so Bill Miller | Chief Executive Officer: If you think about there's really 3 pieces that Vico serves in Indian phosphide, many laser manufacturing 1st, is the step, which I think is pretty well known and discussed. So Vico and our competitor. Provide equipment to make the business end of the laser, the Indian phosphide at the taxi that makes the device. We also have. What process processing what? wet etch and wet clean steps as part of the formation of the laser. And then also a part that's probably not as well known by investors is Veco has an ion beam deposition product called the SPECTR that deposits the anti-reflective and highly reflective coatings to create the laser facet coatings. in the laser. And as you might guess, having followed the company, ion beam deposition can deposit films much better than PVD or e-beam deposition, et cetera. And so we can deposit films with much better optical properties, very similar to the fact that we can make better IBD-EUV films or better ion beam deposition films for low-resistance metal. So here's another example of kind of this ion beam core technology, where VECO sold over 100 tools during the dot-com boom, lighting up DWDM fiber, and then that business kind of went away for quite a long time. But during that time, VECO maintained these deep technical relationships with a number of key customers where we are kind of process tool of record in their laser facet coding business. And so I think it's probably worth noting that, you know, when you look at the size of the three opportunities in front of us, the epitaxy market and the laser facet coding market opportunities are of about the same size. They're pretty significant markets. And I would characterize our laser facet coding opportunity, where we have a very strong incumbent position, not everywhere, but at a number of key companies. Whereas in the epitaxy space, as I think you know, our competitor has a very good incumbent position, but Zico has, over the past number of years, developed some products to improve our competitiveness And in that group of 250 million plus of orders, we did receive a number of MOCBD orders as part of that ramp. So, I would say a large portion of that was for the IBD laser facet opportunity, but also includes some very important orders for wet processing, because that's a really critical step in the device manufacturing. as well as the epitaxy step.

David Dooley | Analyst at Steelhead Securities

Okay, so the epi step is the one where you've gone head-to-head, I think, with like Axtron and you've- Correct. I guess one part of the business here. Would you say you're a second source or a primary source? And I'm sorry to dwell on this, but it's mentioned in the press release, I think multiple customers. Could you just elaborate a little bit more about your position in Bill Miller | Chief Executive Officer: Yeah, so I would say in laser facet coding, we have a very strong incumbent position. I would say in the epitaxy step, we are probably more the second provider there today as a second source. And I would say in the wet processing, we have a strong position there with the number of the leaders there.

David Dooley | Analyst at Steelhead Securities

Okay, final question from me, and we'll turn it over to others, is the GAN opportunity, you know, I think you talked about it, and you've received an order in the past, I think, from a 300 millimeter GAN customer. How big of a market do you think that that could be if, you know, if you're able to penetrate and capture some of the business that I'm assuming all these things are All these GAN parts are going into the data center, but maybe I'm wrong. Maybe you could just elaborate a little bit about that. That's it for me.

Thanks. Bill Miller | Chief Executive Officer

Yeah, Dave, you're right on there. I'd say the adoption of 300-millimeter GAN on silicon is squarely targeted at the AI data centers. I would say we've had, as you know, a tool out with a major IDM for some time. The performance of our tool set is doing quite well. We have a pilot line tool order from the customer, and we're in the process of manufacturing that and would expect to ship that at the end of the year kind of timeframe. So, yes, it's definitely squarely in the AI data center applications.

Operator | Conference Operator

Thank you.

Dennis Hatchinan | Analyst at Needham and Company

Thank you, Dave.

Operator | Conference Operator

Our next question comes from Gus Richard with Northland Capital Markets.

Please state your question. Gus Richard | Analyst at Northland Capital Markets

Yes, thanks for taking the question and congratulations on the huge water momentum. You know, to hit the high end of the range for the full year, you know, what are the levers to get there? Is it delivery times?

John Kiernan | Chief Financial Officer

Yeah, so Thanks for the question, Gus. I think our opportunity to go to the higher end of the range right now primarily rests in the semiconductor piece of our business. And I would say in the areas of laser annealing and lithography are probably sort of the drivers there. If I look at the other markets, And I look at, like, for example, the, you know, data storage market, you know, given our lead times and how we work with our customers on, you know, sort of build to order, you know, there could be some upside in some service and aftermarket business, but the systems business is pretty much booked out for this year, and we're booking orders into next year. And in the compound, you know, semiconductor market, you know, we're able to get some of this new business into the back half of the year, as Bill, you know, mentioned here in answering, you know, an earlier question about some tools coming into Q3 and Q4. And, you know, we were anticipating that as part of our view for the year already anyway. But the predominant, you know, increase in capacity and bringing on and meeting the customers, you know, shift dates principally happened in 2027.

Gus Richard | Analyst at Northland Capital Markets

Got it. And, you know, sort of the underneath question is the spectra. Does that have a similar, you know, three-quarter lead time as ion beam depth for HDD?

John Kiernan | Chief Financial Officer

You know, we'll work to on that, you know, sort of, you know, lead time. We've been, you know, in this business for, you know, a long period of time. You know, recent business is a few tools of, you know, a quarter. And, yeah, I think the lead times are more in that, you know, sort of nine-month, you know, lead time, you know, there. You know, as we look to, you know, ramp up, you know, this business here, we'll look to reduce lead and, you know, cycle times, you know, for that business in order to meet, you know, customer shipment requirements. But mainly we're going to see, you know, sort of a step up in the output for that business starting in Q1 of 2027.

Gus Richard | Analyst at Northland Capital Markets

Okay, got it, got it. Makes complete sense. And then just in terms of some of the evals that are going on, the IMB debt for the memory market, you know, do you think you can reach conclusion on those evals, you know, in the next quarter or two? And, you know, sort of what are your prospects on getting over the finish line?

Bill Miller | Chief Executive Officer

Yeah, we're, you know, the the feedback from our customers is, it's, it's not a matter of if it's a matter of when they're impressed with, very impressed with the film performance of the IBD, where we're working very closely with them is in areas such as particle performance, automation, reliability. And so They've extended their evals out through the end of 2026, and we're working on a few CIP improvements to the tool to address some of those shortcomings. So I would say it's really, the customer is really quite excited about the opportunity, but we do have some, I would call it engineering work left to do to demonstrate the the high volume requirements of front-end setting.

Gus Richard | Analyst at Northland Capital Markets

Got it. All right. Thanks. That's it for me. Thank you, Gus. Thank you, Gus.

Operator | Conference Operator

A reminder to all participants, to ask a question, please press star 1 on your telephone keypad. Our next question comes from David Dooley with Steelhead Securities.

Please state your question. David Dooley | Analyst at Steelhead Securities

Yeah, again, thanks for taking my further questions. Could you talk a little bit more about the hard disk drive business? And, you know, what do you think that that will, what sort of second half growth profile should we expect versus the first half? And then you talked about obviously having the order book is full and manufacturing slots are full for 26. Are you expanding capacity for 2027 at this point? Or it would seem to me like the disk drive guys are going to add a lot of capacity given what they're seeing from the AI data centers, but maybe I'm wrong.

Bill Miller | Chief Executive Officer

Yeah, I would say... Dave, we're looking to double that business in 26 over 25, and I would say the trajectory of it is more second half loaded. I think probably the first system shipment is planned to happen in Q2, not in Q1, and then ramping in Q3 and Q4. just based on lead times. As you know, we kind of do a build-to-order model. We're not a build-to-forecast model, and that kind of keeps us and the industry healthy, and that does seem to work for everybody. But what we are seeing, I would characterize year-to-date at this point, that both of our major customers are continuing to place orders not only for front end equipment to, you know, at the wafer level, but also the back end, what they call the slider fabs, which clearly means that the number, that they're increasing the number of heads that they're producing. So, I would guess, based on the order activity we're seeing here early in 26, that certainly the first half of 2027 will remain strong. And I would just characterize the commercial activity John Kiernan | Chief Financial Officer: uh still remains remains pretty positive from a from an order book standpoint john i don't know if you'd like to add yeah i think you covered that uh very very well bill i think that really sums up well where we are with uh 2026 and you know what disability we have into 2027 at this time and then final one for me is um what would you expect kind of you know a rough cut of what you expect your semi revenue to grow in 26 and David Dooley | Analyst at Steelhead Securities: I'm guessing it's probably going to grow higher in 27, but maybe you could elaborate a little bit on some of the puts and takes to growth in both 26 and 27.

Yeah. John Kiernan | Chief Financial Officer

We see mostly, you know, sort of, you know, positive environment here in 2026 and, you know, estimates of a growing, you know, WFE environment in 26 and moving into 2027. pieces of the business, you know, attached to, you know, AI and high performance, you know, computing, expected to expected to grow. And so that's advanced foundry logics with our laser annealing product, high bandwidth memory for our customer that we've, you know, penetrated, you know, there and, you know, continued strength in in advanced packaging. I would say the, you know, the one, you know, headwind for us in the semi-business, but it's more than offset in the strength in the pieces of the business I just mentioned, is declining business in China for mature node. So we expect, you know, that business to have, you know, headwind in, you know, 2026. We've been foreshadowing this for the last, you know, two years or so right now that we saw the business um you're falling off in in 2025 as a reminder we have a narrow um you know base of business there in china it's really highly predominant for our lsa product for 40 and 28 nanometer um you know fabs and they just don't seem that same level of investment in new fabs that we saw a couple of a couple of years ago so Taking all that into consideration, we see, you know, sort of our semi-business growing this year over last year mid-teens.

David Dooley | Analyst at Steelhead Securities

I was going to say, since you're taking the Chinese lumps this year, I would guess that, you know, your growth rate would probably accelerate next year.

John Kiernan | Chief Financial Officer

You know, we're looking at a very positive, you know, WFE environment, and we have nice attachments to the areas that are expected to drive WFE. Yeah, I think as we have this early look at 2027, you know, 2027 looks positive. Bill did, you know, sort of mention earlier and had remarks that we are increasing, you know, our capacity for advanced packaging. We see opportunities, you know, for that to continue to grow into 2027. So, we're taking, you know, making some investments to increase capacity there as well.

Bill Miller | Chief Executive Officer

It's probably also worth mentioning, Dave, that you know, a lot of the WFE estimates that you see include some pieces of the silicon photonics market. And so you'll see that show up in our compound semi. So when you look at semi alone, really some of the compound semi will probably be categorized as WFE by more generally. And so our compound semi business is probably going to grow 50%. So when you take You know the kind of mid teams that John spoke spoke about in the portion that's really significantly growing. We're probably growing much higher than that on a WFE basis.

Operator | Conference Operator

Great point, thank you.

Bill Miller | Chief Executive Officer

Thanks Dave.

Operator | Conference Operator

At this time we have no further questions. I would now like to turn the call over to Bill Miller for closing remarks.

Bill Miller | Chief Executive Officer

Thank you. As we look ahead, we believe Zico is well-positioned to meet the evolving needs of our customers as the silicon photonics industry reaches an inflection point driven by AI and high-performance computing. Our technologies across logic, memory, advanced packaging, compound semi, and data storage are becoming increasingly critical as customers push for greater performance, scale, and efficiency. With strong customer demand, expanding served available markets, and disciplined execution, We see meaningful long-term growth and remain focused on delivering sustained value for our shareholders. I'd like to thank our employees for their hard work, as well as our customers, partners, and shareholders for their continued trust in Veco.

Have a great evening. Operator | Conference Operator

Ladies and gentlemen, the conference call of Veco has now concluded. Thank you for your participation. You may now disconnect your lines. jsPDF 3.0.3 D:20260606090525-00'00'

NASDAQ:VECO Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings, and welcome to the VECO fourth quarter and full year 2025 earnings call. At this time, all participants are in a listen-only mode. It is now my pleasure to introduce your host, Alex Delacroix, head of investor relations. Thank you.

You may begin. Alex Delacroix | Head of Investor Relations

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, VECO's chief executive officer, and John Kiernan, our chief financial officer. Today's earnings release and slide presentation to accompany today's webcast is available on the VECO website. To the extent that this call discusses expectations for future revenues, future earnings, the timing and expected benefits of the proposed transaction with Excellus, market conditions, or otherwise make statements about the future, these forward-looking statements are based on management's current expectations. and are subject to the risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K Annual Report and other SEC filings. BCO does not undertake any obligation to update any forward-looking statements, including those made on this call to reflect future events or circumstances after the date of such statements. Unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation. We will not be addressing questions related to our pending merger with Excellus. Please note that on February 6, 2026, our stockholders voted to approve all proposals related to our pending merger with Excellus. We urge you to read the joint proxy statement relating to the transactions with Excellus. With that, I would now like to hand the call over to our CEO, Bill Miller.

Bill Miller | Chief Executive Officer

Thank you, Alex, and thank you everyone for joining us on our call today. Ricoh executed well in 2025 and accomplished important milestones setting the stage for future value creation. We grew our semiconductor business, experienced rapid expansion in our order activity for compound semiconductor, and data storage customers, supporting strong growth in 2026, and continue to invest strategically in next-generation technologies. Additionally, on October 1st, 2025, we announced an all-stock merger agreement with Excellus Technologies to create a leading semiconductor equipment company. Our new products are gaining powerful traction fueled by accelerating demand from AI and high-performance computing. as hyperscalers ramp their next generation infrastructure, we're seeing clear acceleration in order activity. This momentum drove a meaningful build in backlog at year end, supporting an increase in revenue for 2026. Later in the call, John will provide additional detail on our backlog. Revenue for our semiconductor business reached another record in 2025, which was primarily driven by laser annealing and wet processing and ion beam EUV technology. We shipped an LSA evaluation system to our second tier one DRAM customer, showing exciting progress for penetration with our memory customers. A key driver for the semiconductor market came from our advanced packaging business, which we doubled year over year. This was driven by wet processing and lithography tool shipments for 3D packaging. New products for the compound semiconductor market are gaining significant traction and driving market share gains. We received orders for our new Propel 300-millimeter Ganon silicon system for Gan power and micro-LEDs and Lumina Plus arsenide phosphide for photonics and solar end markets, which support revenue growth, primarily in the second half of 2026. Additionally, in the data storage market, We see customers expanding capacity, increasing CapEx spend, and adopting heat-assisted magnetic recording, resulting in increased orders in the third and fourth quarter of 2025 for our ion beam and wet processing equipment. This is driving an increase to revenue, principally in the second half of 2026. We continue to invest in strategic opportunities for future growth with our next-generation technologies. We've extended our IBD 300 systems evaluations at two DRAM memory customers into 2026. Our customers are providing positive feedback with respect to the quality of film performance. We remain excited about the opportunity to introduce ion beam as the fourth deposition technology for the front end semiconductor space. Additionally, our customers are evaluating our next generation nanosecond annealing systems, which are progressing well. and we expect to expand the evaluation program to another customer in 2026. Let me take a moment to briefly update you on the progress of our proposed merger with Excelis. We're pleased that shareholders of both companies approved the merger at their respective special meetings held on February 6th. In addition, we've secured regulatory approvals in several key jurisdictions and remain actively engaged with the relevant authorities in China as we work toward the final clearance needed to close. Based on our continued progress, we anticipate completing the transaction in the second half of 2026. Furthermore, our integration work with Excellus continues to reflect our strategic alignment and confidence in the merger. We believe the combination will increase R&D scale, enable a broader complementary product platform, realize several growth synergies, and ultimately drive sustainable returns for all our stakeholders. Switching gears to financial highlights for the quarter and full year. Our fourth quarter revenue came in at $165 million and our EPS came in at 24 cents, both at the midpoint of guidance. Our semiconductor business accounted for 67% of revenue. The full year top line was $664 million and our EPS was $1.33, with our semiconductor business hitting a record year, accounting for 72% of total revenue. This performance demonstrates we're well aligned with ongoing investments in advanced semiconductor technologies and customers' roadmaps. Next, I'll review Veco's critical role in the semiconductor manufacturing space, where the majority of our revenue is generated and we continue to grow year over year. Ricoh has historically had a strong position with Foundry and Logic customers for annealing applications, and the foundation has provided a high level of trust and repeat business across advanced nodes. At the same time, expanding our presence into memory is one of the most important strategic priorities. The transition to AI-driven architectures, high bandwidth memory scaling, and 3D structures are driving new thermal processing and material requirements, where VECO has clear technical advantages. For our LSA tool, we're a production tool of record at all three Tier 1 Logic customers, demonstrating our strong competitive position. Our next generation NSA system has two evaluations at Tier 1 Logic customers, and we're planning to ship an evaluation system to the third Tier 1 Logic customer in 2026. These evaluations for our customers' low thermal budget applications such as contact annealing, 3D device stacking, and material modifications are progressing well. We're expecting sign off of two evaluations during 2026 with the potential for pilot line orders to shortly follow. On the memory side, we continue to make meaningful progress penetrating the space and are expanding our footprint with Tier 1 DRAM manufacturers. In addition to being the production tool of record at a leading HBM DRAM customer, we recently shipped an LSA evaluation system to a second DRAM manufacturer, an important milestone that reflects growing confidence in our laser annealing capabilities for memory applications. We also have two IBD 300 systems under evaluation at leading DRAM customers with evaluations extended into 2026. Our IBD 300 system enables deposition of low resistance films that are critical for advanced DRAM structures such as bit line. This provides VECO with another opportunity to expand our SAM with the next generation memory nodes. Further penetrating the memory space represents a significant long-term growth opportunity as DRAM requirements become increasingly complex with the transition to HVM, stacked architectures, and low-resistance metallization designs. Our recent wins in evaluation activity represents early but significant steps toward establishing meaningful long-term growth in the DRAM market as this segment accelerates within the industry. Vico is also the market leader for IBD EUV systems for the deposition of defect-free mass blanks, leading logic and memory device makers continue to expand adoption of EUV and future adoption of high NA EUV lithography, which our IBD technology is a key enabler. We're also expanding our business to include EUV pellicles, which are increasingly being used to protect the mask from particles. We're confident our product roadmap is well aligned with the industry and our customers' needs. Lastly, in advanced packaging, We've doubled our business from $75 million in 2024 to $150 million in 2025, driven by AI-related demand. We've won multiple orders for advanced wet processing and lithography systems from leading foundries, and we continue to see strong demand driven by heterogeneous integration and 3D packaging. Looking ahead, we forecast semiconductor market growth at the leading edge driven by AI and high-performance computing. We expect our semiconductor served available market to continue to expand, driven by new nodes and AI-related demand, including investment in gate all around, high bandwidth memory, and 3D packaging. In annealing, we project our SAMs to be $1.3 billion by 2029, as devices continue to shrink And shallower and more precise anneals are required to improve performance. In 2026, we see our logic, foundry, and memory customers all increasing capacity for our annealing tools. Next, our IBD 300 platform for low-resistance metals, together with our ion beam deposition systems for EUV mask blanks and pellicles, represent a total SAM opportunity projected to reach $500 million by 2029. The need for low resistance metals deposited in a uniform manner is required for better device performance and to minimize power consumption. Lastly, in the backend semiconductor process, our advanced packaging business for our wet processing and lithography tools continues to expand and the SAM is projected to reach $650 million by 2029. Throughout the year, We've demonstrated the ability to respond successfully in meeting our customers extreme high volume manufacturing ramp of advanced packaging for AI. Based on the strong relationships we've developed with tier one foundry and memory customers, we're invited to engage with their R&D teams and becoming a critical partner in their future roadmaps. We continue to focus the organization on our key growth areas and remain excited about successfully positioning our business to align with industry advancements and meeting our customers' growing needs. I'll now hand the call over to John to walk through the financials and provide an outlook for 2026.

John Kiernan | Chief Financial Officer

Thank you, Bill. To begin with revenue for the year, revenue came in at $664 million, declining 7% from the prior year. Our semiconductor business delivered $477 million in revenue, up 2% year over year, and comprising 72% of revenue. Revenue in the semiconductor market was driven largely by laser annealing, ion beam technology, and our advanced packaging, wet processing, and lithography products. As disclosed in January, two LSA tool shipments to customers in China were under customs review. These matters have since been resolved, and we recognize $15 million of revenue related to these systems in the fourth quarter of 2025. Compound semiconductor revenue totaled $60 million, a decline from the prior year representing 9% of revenue. Data storage revenue totaled $39 million, declining from the prior year and comprising 6% of revenue. Lastly, scientific and other revenue was $89 million, increasing from the prior year, making up 13% of revenue. Turning to revenue by region, the Asia-Pacific region was 50% of revenue, led by shipments to a leading Taiwanese semiconductor customers for multiple Beko products. Our China portion was 27% of revenue, with a decrease from the prior year in laser annealing systems. The U.S. accounted for 15% of revenue, and lastly, EMEA was 8% of revenue. Our order backlog ended the year at $555 million, a significant increase of $145 million from the prior year. This 35% growth in backlog reflects the strong acceleration in orders in the second half of 2025. This positions us well for revenue growth in 2026, principally in the second half. I will provide additional market segment commentary in the guidance section. Moving to our full year 2025 non-GAAP operating results, gross margin came in at 41 percent. Operating expenses totaled $188 million. Operating income was $84 million and net income was $80 million, with tax expense of $10 million yielding an effective tax rate of 11 percent. Diluted EPS was $1.33 for the year on approximately 61 million shares. I'll now provide selected GAAP full year data. Amortization expense was $3 million. Our equity compensation expense was $37 million. Depreciation, $17 million. And net interest income was $4 million. Turning to Q4 revenue by market and geography. Revenue came in at $165 million. flat from the prior quarter and at the midpoint of our guidance. Semiconductor revenue declined slightly, comprising 67% of revenue. In the compound semiconductor market, revenue increased from the prior quarter to $20 million, totaling 12% of revenue. Data storage revenue remained flat at $10 million, comprising 6% of revenue. Similarly, scientific and other revenue remained flat at $24 million, making up 15% of revenue during the quarter. Looking at revenue by region, the percentage of revenue from Asia Pacific increased to 54% due to an increase in semiconductor sales, mainly in Taiwan. Revenue from China was 23%, U.S. 18%, and EMEA was 5%. Now moving to our quarterly non-cost operating results, Gross margin totaled 38% at the midpoint of our guidance. Operating expenses totaled $49 million, also in line with our guidance. Income tax expense was approximately $1 million, resulting in an effective tax rate of 4%. Net income came in at $15 million, and diluted EPS was 24 cents on 62 million shares. On the next slide, I will discuss our balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $390 million, a sequential increase of $21 million. From a working capital perspective, our accounts receivable decreased by $6 million to $111 million. Inventory increased by $12 million to $275 million, and accounts payable increased by $12 million to $55 million. Customer deposits included within contract liabilities on the balance sheet increased by $14 million to $50 million. Cash flow from operations increased from the prior quarter to $25 million, bringing our total for the year to $69 million. And CapEx totaled $3 million during the quarter and $16 million for the year. I would now like to provide a non-GAAP outlook for Q1 and fiscal year 2026. Q1 revenue is forecasted between $150 and $170 million. We expect gross margin between 37 and 38 percent, OPEX between $48 and $50 million, net income between $9 and $15 million, and diluted EPS between 14 and 24 cents on 62 million shares. The momentum of orders secured in the back half of 2025 will contribute to meaningful revenue growth primarily in the second half of 2026, supporting a strong full-year outlook. Full-year 2026 revenue is forecast between $740 and $800 million. We expect gross margin between 41 and 43 percent, OPEX between $205 and $220 million, net income between $94 and $115 million, and diluted EPS between $1.50 and $1.85 on 63 million shares. Let me provide commentary for each of our market segments. Beginning with the semiconductor market, we expect strong growth from our Tier 1 customers driven by AI and high-performance computing, more than offsetting declines in mature node China business. We are seeing accelerating demand for our LSA tools at advanced nodes, along with growth in wet processing applications for advanced packaging as customers scale capacity driven by AI and HVM. In the compound semiconductor market, we see growth in 2026 weighted in the second half. We received several orders in 2025 for our new propelled 300 millimeter GAN on silicon system for GAN power and micro LED applications. as well as orders for our new Lumina Plus arsenide fosfide system supporting photonics and solar end markets. These new product wins are driving revenue in the second half of 2026. We're also seeing continued engagement from customers and are taking orders for deliveries into 2027. In the data storage market, we secured orders in the second half of 2025 for our ion beam and wet processing equipment. As we move into 2026, customers are signaling broader hammer adoption, increasing capex investments, and expanding capacity. These trends by our customers are driving momentum for our business as we are fully booked in 2026 and have multiple orders extending into 2027. Before I hand the call over to the operator for Q&A, I want to reinforce that AI is a critical driver of VECO's growth in semi, compound semi, and data storage markets, and we have a strong portfolio of enabling technologies that are increasingly critical to serve leading customers. From a semiconductor market perspective, analysts are projecting the industry to grow to over a trillion dollars in the near term, with AI accounting for more than half of sales. We are confident that Veco is well-positioned to create long-term value in an increasingly AI-driven semiconductor market. We are also excited about the pending Excellus merger, which we feel will enable us to better accelerate our investments in next generation technologies and offer an even better product portfolio to our customers. I would now like to turn the call over to the operator to open up for Q&A.

Operator | Conference Operator

Thank you. We will now be conducting our question and answer session. As a reminder, given the pending merger with Excellus, VECO management will not be addressing questions related to the merger. If you would like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And the first question comes from the line of Dave Dooley with Steelhead Securities.

Please proceed. Dave Dooley | Analyst, Steelhead Securities

Yeah, thanks for taking my question. I was wondering for the outlook for 2026 if you could give us an idea of what you expect your semi-business to grow and your hard to strive business to grow. Actually, just all three segments to your best of your abilities would be awesome.

John Kiernan | Chief Financial Officer

Yeah, I'll take that, Dave, and thanks for the question. So yeah, so we given a guide of 740 to $780 million of revenue for next year, 800, excuse me, thank you, Bill, 740 to $800 million, you know, next year. So if you pick the midpoint of the guide at 770, that's up 16%. And we do expect growth in the semiconductor piece of the business, the compound semiconductor and the data storage piece, the one area of the market that we expect to be down would be the scientific and other after a strong year in 2025. And we had some large quantum computing orders that we don't see at this point continuing into 2026. So we're going to see that business called about $60 million at the midpoint of our guide, down by about 33%. But let me come back to the semiconductor market first. It is our largest market. We expect growth around 15 percent at the midpoint of our guide, so about a $550 million revenue year in 2026 for the semiconductor piece of the business, and fairly, you know, in line with the range of estimates for WFE growth between 10 and 20 percent for next year. You know, on the compound semiconductor side, as Bill mentioned in the prepared remarks, We're really making traction with some of our new products and particularly for the GAN on silicon 300 millimeter for both GAN power and micro LED and our new large batch size arsenide phosphide tool for solar and other applications. And we expect that business to be up about a third next year to about 80 million. And then the data storage, we started signaling the data storage that customers were increasing the order activity in Q3. We expected that activity to continue in Q4. It has. And we're expecting that business to double to about $80 million in 2026. And we mentioned in our prepared remarks as well, that we're fully booked for system orders for 2026 at this point in time and even started booking orders into the beginning of 2027.

Dave Dooley | Analyst, Steelhead Securities

And along that last point in the hard disk drive business, if you're fully booked this year and it's spilling over into next year, I would imagine your customer's CapEx is obviously going up. I would think this would be a multi-year increase in business in that sector. Maybe you could just help us understand what you think.

Bill Miller | Chief Executive Officer

Yeah, we're definitely seeing with the adoption of hammer, the capital intensity is going up. Certainly their CapEx is increasing and we're seeing, you know, the first round of orders that we'll be shipping in 26 are really for the front end fabs. And now we're starting to see some orders not only continuing in the front end, but also the back end fabs that we call the slider fabs for shipment in 27. so it does seem that. The amount of heads that are being shipped is increasing because the slider fab is really just a function of the number of heads shipping. So that's that's a very positive sign actually. So, I think it's there's clearly legs into 27 and potentially.

Dave Dooley | Analyst, Steelhead Securities

Great. Final question from me is, on the Propel, I was just wondering, you know, that's the GAN on silicon tool, I believe. You know, what do you think the opportunity for revenue production is in 26 and 27? And I would imagine the outlook there might be increasing, just given that there seems to be a lot of momentum to adopt GAN in the data centers.

Bill Miller | Chief Executive Officer

Yeah, well, what we as you know, Dave, we've had an evaluation system at a leading power IDM for for some time, and that's going very well or at a very solid position there. And we I think about our last call announced that we actually received a pilot line order for. We received a pilot line order for a excuse me. a pilot line order for shipment in 2026. And so that's going to drive incremental business in probably approaching $15 million range. And I would expect there's a possibility just if they stick with their plans of continuing to ramp in 2027, we might receive orders in the second half of 2026 to be shipped in 2027 for that. That's the power opportunity. We also have a tool and backlog for 300 millimeter propel gain on silicon for a micro LED application. And we're actually doing demos with a few different customers for micro LEDs as well as other GAN power opportunities.

Operator | Conference Operator

Thank you. The next question comes from the line of Dennis Payachanan with Needham.

Please proceed. Dennis Payachanan | Analyst, Needham

Great. Thank you. I have a question about the gross margins. So it seems like we're taking a little bit of a dip here in Q4 and then in Q1. I think in Q4 it was because of some evaluation systems, and I think you're still guiding a little bit below where you were trending before that. Can you tell us about gross margins in Q1 and how you see them progressing through the rest of the year, given that you guided, I think, 41 to, was it 43% for 2026? Sure, Dennis.

John Kiernan | Chief Financial Officer

Thanks for the question, and I'll be happy to. So, yes, we're guiding Q1 at a similar level to Q4, and we had highlighted coming into Q4 that we saw a change in our product mix And that product mix moved a little bit more to advance packaging as a bigger percentage of the overall business with a lower gross margin profile and also some impact from anticipated sign-offs from evaluation systems. And I would say that for Q1, we're seeing a similar revenue profile and a similar, you know, margin drivers there for Q1. As we look into the year, we do see gross margin accelerating, and accelerating particularly in the second half of the year next year. And that's driven by a couple of factors. You know, one, that we're seeing, you know, business from our new products, and the gross margins on those new products are higher than the most recent averages. Increase in the data storage business will help towards gross margin improvement. And significantly higher volumes in the second half of the year next year will also benefit the gross margin profile. And I would say as we exit the second half of the year, or we're in the second half of the year in 2026, we would expect to see, you know, gross margins at our 45%, you know, gross margin, you know, target.

Dennis Payachanan | Analyst, Needham

That's some great detail. Thank you. So, just following up on that, is there currently any sort of tariff headwind that's factored into the guide, and could you quantify it if possible?

John Kiernan | Chief Financial Officer

Yes. So, we started to see the impact, you know, principally in the second half of last year, and it was running about 100 basis points of gross margin headwind to tariff regime. And we're baking in slightly higher tariff regime in our forecast in 2026 compared to 2025.

Great. Dennis Payachanan | Analyst, Needham

That's it from us.

Thank you. Operator | Conference Operator

Thank you. Thank you. At this time, we have no further questions. I'd like to turn the call back over to Bill Miller for closing remarks.

Bill Miller | Chief Executive Officer

Thank you. As we look ahead to 2026 and beyond, we remain confident in our ability to build momentum. We can continue to be excited about the pending merger with Excellus, which we believe together will enhance our ability to bring needed solutions to the rapidly evolving semiconductor industry and better serve our customers and shareholders. We look forward to keeping you updated on our progress. I would like to take a moment to thank our customers and shareholders for the continued support as well as recognizing our employees for their dedication.

Have a great evening. Operator | Conference Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time and we thank you for participating. jsPDF 3.0.3 D:20260606090527-00'00'

NASDAQ:VECO Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Delacroix, Head of Investor Relations. Thank you.

You may begin. Alex Delacroix | Head of Investor Relations

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, VECO's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release and slide presentation to accompany today's webcast is available on VECO's website. To the extent that this call discusses expectations for future revenues, future earnings, the timing and expected benefits of the proposed transaction with Excellus, market conditions, or otherwise make statements about the future. These forward-looking statements are based on management's current expectations and are subject to the risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K Annual Report and other SEC filings. FECO does not undertake any obligation to update any forward-looking statements, including those made on this call to reflect future events or circumstances after the date of such statements. Unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation. Given the pending merger with Excellus, We will not be addressing questions related to the transaction. Please note that today's call is neither an offering of securities nor solicitation of a proxy vote in connection with our previously announced transaction with Excellus. We urge you to read the joint proxy statement relating to the transaction with Excellus once it becomes available. With that, I would now like to hand the call over to our CEO, Bill Miller.

Bill Miller | Chief Executive Officer

Thank you, Alex. Good afternoon, and thanks for joining us. We entered the quarter focused on execution, and I'm pleased to report that VECO continues to perform well. Third quarter revenue was $166 million, exceeding the midpoint of our prior guidance of $160 million, and non-GAAP operating income was $23 million. Non-GAAP diluted earnings per share was 36 cents, above the prior guidance midpoint of 28 cents, reflecting continued operational discipline and strong execution across the business. This performance underscores the sustained investment in leading-edge semiconductor technologies, particularly in AI and high-performance computing. These trends are driving healthy demand, especially in gate-all-around, high-bandwidth memory, and advanced packaging, where VECO's differentiated equipment enables customers to advance their most complex technology roadmaps. On October 1st, we announced that we entered into a definitive agreement to combine with Excellus Technologies in an all-stock transaction to create a leading semiconductor equipment company serving complementary, diversified, and expanding end markets. The completion of the merger is subject to, among other things, the approval of our stockholders and various regulatory approvals, which we are focusing on securing. We are hopeful that we will successfully bring this transaction to completion and strongly believe these two companies are optimal together and will drive sustainable value creation for all our stakeholders. We expect to see many growth synergies from the transaction that will be integral and driving success for the combined company. First, expansion of our served available market, which combined was over $5 billion on a pro forma 2024 basis. Second, we believe the transaction will enable a broader and complementary product portfolio and provide better solutions and services for the combined company's customers. A few items include adjacent technology steps with Excellus' ion implantation and our laser annealing, likely providing significant opportunities to enhance device performance and yield. Accelerated development of ion beam deposition technologies likely enabling greater market share gain from traditional deposition technologies. Third, we believe the transaction will provide expansion of the combined company's channel reach and regional leverage. Together, this will allow us to penetrate Tier 1 foundry, logic, memory, and IDM customers more effectively. Fourth, the combination will increase R&D scale and enhance capabilities, which we believe will accelerate benefits to the combined company's collective customers. And lastly, with over $900 million in combined cash, we expect the combined company to benefit from a strong operating profile and the financial foundation to drive returns to shareholders. Now, I'll turn to our critical role in the semi-manufacturing process and provide updates on our evaluation programs for the quarter. We are the production tool of record for laser spike annealing for all Leading Logic customers and one Tier 1 DRAM customer. We expect to grow our penetration in Leading DRAM by shipping an LSA evaluation system to a second Tier 1 DRAM customer in the fourth quarter of this year. Additionally, our next-generation nanosecond annealing system expands our capabilities to the nanosecond regime, and our systems are being evaluated to advanced logic customers for advanced low-thermal budget applications. These evaluations are progressing well, and we plan to ship additional NSA evaluation systems during 2026 to Tier 1 customers. We're also the market leader for IBD EUV systems for the deposition of defect-free films. Our product roadmap is well aligned as the industry adopts next-generation high-NA EUV lithography, and we're expanding our EUV-related business to EUV pellicles, which are increasingly being used to improve the productivity of EUV steps. Our IBD EUV system is used to form the high transparency membrane used in pellicles. Demand tied to AI and high performance compute remains strong and is pulling innovation forward. Our next generation IBD 300 system is being evaluated by two DRAM customers. This technology differentiates itself from incumbent technologies through its ability to achieve superior thin film properties with lower resistance. which is essential for device scaling, performance, and power consumption. Additionally, advanced packaging for wet processing and lithography continues to grow from AI-related demand. Our wet processing system orders increase quarter over quarter, and we see continued order activity in our lithography system. Last month, we announced multiple orders for our advanced packaging wet processing and lithography systems from a leading foundry, supporting critical end markets through AI, automotive, aerospace, defense, and communications. Across our portfolio, we continue to focus on performance and yield advantages that matter most to our customers in advanced nodes. As we look ahead, we believe our portfolio enables technologies for key inflections supporting innovation in gate all around, high bandwidth memory, EUV lithography, and advanced packaging. These growth areas create significant opportunities in our served available markets. In annealing, we project our SAM to be approximately $1.3 billion by 2029, as devices continue to shrink and shallower anneals are required to improve performance and adapt to changing structures. For ion beam deposition technology in SEMI, we project our SAM to be approximately $500 million in 2029, as the market expands to adopt EUV and high NA lithography. This growth is also driven by the need for lower resistance metals deposition in a uniform manner required for improved device performance and power consumption. Lastly, in advanced packaging, we project SAM growth to be approximately $650 million by 2029. with growth mainly driven by wet processing systems supporting AI and high performance computing. As we look across the business, we continue to invest in programs that position us for the next leg of growth and focus our R&D to advance the industry. I'll now turn the call over to John to walk through the financials for the quarter and provide our outlook for Q4 2025. Thank you, Bill.

John Kiernan | Chief Financial Officer

Revenue came in at $166 million above the midpoint of our guidance, in line with the previous quarter. Our semiconductor business reported $118 million, a decline of 5% quarter over quarter, and 71% of total revenue. Our performance was driven by LSA, IBD EUV for mass blanks, and our advanced packaging wet processing systems. In the compound semiconductor market, Revenue was $11 million, down from the prior quarter, totaling 7% of revenue. Data storage revenue was $10 million, totaling 6% of revenue. And scientific and other revenue increased to $27 million, totaling 16% of revenue, driven by an increase in optical deposition systems. Turning to the quarterly revenue by region. Revenue from the Asia Pacific region, excluding China, was 49%, a decrease from 59% in the prior quarter. Sales were driven by customers in Taiwan for LSA, IBD EUV masks, and advanced packaging. Revenue from China customers was 28%, an increase from 17% in Q2. Sales were driven primarily by LSA and optical deposition systems. The United States came in at 16%, and EMEA was 7%. Switching gears to our non-GAAP quarterly results. Gross margin totaled approximately 42 percent at the top end of our guidance. Gross margin was favorably impacted by higher volume and improved product mix. Operating expenses totaled approximately $46 million, which came in favorably below our previously guided range. Income tax expense was approximately $3 million, resulting in an effective tax rate of approximately 12 percent. Net income came in at approximately $22 million, and diluted EPS was 36 cents on 61 million shares. Now, moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $369 million, a sequential increase of $14 million. From a working capital perspective, our accounts receivable increased by $10 million to $116 million. Inventory increased by $4 million to $263 million. And accounts payable decreased by $6 million to $44 million. Customer deposits included within contract liabilities on the balance sheet remain relatively flat at $36 million. Cash flow from operations totaled $16 million, and CapEx totaled $3 million during the quarter. Now, turning to our Q4 outlook. Q4 revenue is expected between $155 and $175 million. Gross margin for Q4 is expected to range between 37 and 39 percent, representing a decline from prior periods. This anticipated reduction is primarily driven by a shift in product mix with several discounted evaluation tool acceptances and a greater proportion of revenue from advanced packaging systems. We expect OPEX of approximately $48 million, net income between $10 and $19 million, and diluted EPS between 16 and 32 cents on approximately 62 million shares. I'll now provide additional commentary for each of our markets. In the semiconductor market, we see growth for 2025 compared to 2024, driven by demand in gate all-around and advanced packaging. Additionally, we see continued momentum for our products into 2026, driven by leading-edge investments for AI and high-performance computing. In the compound semiconductor market, we have revenue growth opportunities in GaN power, photonics, and solar for 2026 after experiencing a down year in 2025. We are excited about the recent order activity and the acceptance of our new propelled 300-millimeter GaN and Lumina Plus arsine-phosphide platforms, which are tailwinds for next year. After an extensive successful evaluation period, today we announced that we received an order for our propelled 300 millimeter GAN on silicon MOCVD system from a leading power IDM for AI data centers. This order cements our position as a leader in 300 millimeter GAN technology, which is at an important inflection point transitioning from 200-millimeter wafer sizes. Additional recent announcements in this market include an order for multiple Lumina indium-phosphide MOCVD tools for data center optical communication solutions. We also received the first multi-tool order for our recently released new Lumina Plus platform for low Earth orbit space-grade solar cells. These orders support the revenue growth projected for the compound semiconductor market in 2026, with shipments principally in the second half. In the data storage market, system revenue declined in 2025 compared to 2024 as customers did not add new system capacity. However, our service revenue has increased, reflecting higher customer utilization, And we are excited to announce we recently received orders for our IMB and web processing equipment. We expect these orders to drive data storage revenue growth in 2026, principally in the second half. We continue to see strong demand in the scientific and other market for our research-driven applications. This segment is expected to deliver growth in 2025 supported by ongoing investment in advanced scientific innovation. With that, I'll now turn the call over to the operator to open up Q&A.

Operator | Conference Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation turn will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, given the pending merger with Accelus, vehicle management will not be addressing questions related to the transaction. One moment please while we poll for questions. We have a question from David Daly of Steelhead Securities.

Please go ahead. David Daly | Analyst, Steelhead Securities

Thanks for taking my question. My first question is on some of the 300-millimeter GAN order activity that you've seen. Is there all of a sudden new adoption in these markets that you're referring to? I think in the press release you talk about auto industrial and data center. I was just wondering if you might be able to address why GAN is being adopted in these particular segments at this point.

Bill Miller | Chief Executive Officer

Yeah, we've had an evaluation with this leading power IDM for over a year, and it's been successful, and we just received a follow on multi-chamber order for a pilot line tool, likely for data center applications. And they're going to pilot production in 26, and their plan is to ramp to HVM in 27.

Operator | Conference Operator

At 300 millimeters.

David Daly | Analyst, Steelhead Securities

Sorry. Is there a specific reason now why GAN is being adopted in the data centers?

Bill Miller | Chief Executive Officer

I think the efficiency of power conversion in the data center is a real limiting issue in the data center. And so any material that can be adopted to convert electricity more efficiently is pretty desirous.

David Daly | Analyst, Steelhead Securities

Okay. And then, John, if you could just address the gross margin guidance. I think you mentioned increased evaluation activity as to why the gross margins would be down, but maybe just elaborate on that a little bit for me.

John Kiernan | Chief Financial Officer

Sure, Dave. I'd be happy to. So, yeah, we just ended this quarter with gross margin in Q3 around 42% on the high end of our guided range. But we have guided for Q3 a less favorable, excuse me, for Q4 a less favorable gross margin in 37 to 39% range, which is lower than we have been experiencing. And we did indicate in our prepared remarks, driver being product mix there, And within the product mix, two items to highlight. One is, as you mentioned here, Dave, we're expecting some eval sign-offs this quarter at favorable pricing. Now, for clarity, those are not eval related to our NSA at LeadingLogic or eval for our IBD program. you know, 300 for the low-resistance metal. This is more a recurring sort of LSA type of eval, and as well as an eval that we have out for in-compound semiconductor for micro-LED. So that's the one area. The second area is that we have in our semiconductor business in our Q4 range revenue guide, increased amount of business in advance, you know, packaging for an application where the gross margins for those tools aren't as high as the company average.

David Daly | Analyst, Steelhead Securities

Okay. And then just final question from me is you went through the segments in pretty good detail. I was just wondering if you could elaborate a little bit more on what you would expect the trajectory of your advanced packaging business to be in 2026. I think it doubled this year. I don't imagine it's going to do that again, but what early indications do you have of growth there?

Bill Miller | Chief Executive Officer

Yeah, the business has doubled, Dave, and it was not easy, and I have to give kudos to our operations team and in the business for ramping, doubling the business in a pretty short order there. We are actually running the business to a roadmap, and so we're working with, as you might imagine, industry leaders and helping them with their wet processing challenges, whether they're moving to under-bump metal etch, trying to solve some problems there, photo resist removal, and hybrid bonding. So we feel that we've got a number of projects and programs and demo activity to sustain our position. I think it's a bit early for us to comment on the direction of advanced packaging for 26 specifically, really because the business runs on a shorter backlog of shorter lead time. So that full year visibility, we just don't have it for that segment.

Dennis Payachanin | Analyst, Needham & Co.

Thank you. Thanks, Dave.

Operator | Conference Operator

The next question we have is from Dennis Payachanin of Needham & Co.

Please go ahead. Dennis Payachanin | Analyst, Needham & Co.

Great. Thanks for taking our questions. I think you previously mentioned an uptick in HGD customer utilization. How are the ordering patterns near term? Is it only the demand right now for the second half of 26?

Bill Miller | Chief Executive Officer

Dennis, our lead time, you know, this is a build-to-order business, and our lead times are, you know, approaching a year, maybe a little bit less, but in that range. And so, Our first orders we received in Q3 for ion beam and wet processing equipment, and we're negotiating orders in the fourth quarter. So just based on the timing of the receipt of the orders kind of dictates that those would be shipped in the second half of next year.

Dennis Payachanin | Analyst, Needham & Co.

Great. Thank you for the detail. And on the strength and scientific, could you tell us more about that? Was that driven predominantly by Chinese customers this quarter?

John Kiernan | Chief Financial Officer

There was some content for Chinese customers this quarter. Some of the strength in that segment this quarter also were for optical deposition tools or general industrial applications. there and there was China content with that.

Dennis Payachanin | Analyst, Needham & Co.

Got it. And my last one is about NSA, maybe a little bit more high level. So I think you'd mentioned that it's being tested with Logic customers. Do you see NSA adoption as being possible for memory customers as well?

Bill Miller | Chief Executive Officer

Yes, they're actually interested in adopting it, particularly, you know, because of the NSA can a needle of only very thin layers, so it's very conducive to material modification and 3D stacking, which is happening in memory applications. But yeah, the evals are going quite well, moving along with the two that we have. We have strong pull from the third logic customers, and as I just said, memory customers are interested Our plan would be to ship multiple nanosecond annealing tools in 2026 to a mix of logic and memory or memory.

Dennis Payachanin | Analyst, Needham & Co.

Great. That's it from us. Thank you very much. Thank you, Dennis.

Operator | Conference Operator

The next question we have is from Mark Miller of Benchmark.

Please go ahead. Mark Miller | Analyst, Benchmark

Thank you for the question. Can you give us a little update on the thin metal films with IBD evals?

Bill Miller | Chief Executive Officer

Yeah, we're making good progress in introducing the fourth deposition technology to front-end STEMI. It remains an exciting opportunity. Our customers are very much engaged, and we're working together to improve or work on bringing the maturity of the product up for high-volume manufacturing, as well as working with our customer to integrate the ion beam deposition technology into their existing production processes. So, you know, there's clearly still pull. We have two tools in DRAM, Mark, but there's definitely pull in logic processes, and potential for evals there in the future.

Mark Miller | Analyst, Benchmark

Okay, so two evals with derail manufacturers with the IBD tools. Yes. In terms of your backlog, the visibility you have, margins are going to be down. You talked about that. Why? But going out in the future, does the backlog look like the margins will improve when you start shipping out of it in the future?

John Kiernan | Chief Financial Officer

You want to take a chance? Yeah, so Mark, yeah, so we just said that we expect the gross margin in Q4 to be down for mixed reasons. As we look out into the future, past Q4, our expectation is that we could, see margin improvement in 26 over 2020, over 2025 gross margin, you know, improvement. As was mentioned on the call and our prepared remarks, we're getting good visibility. We're starting to get good visibility, you know, for data storage with orders starting to come in in Q3 and more orders being negotiated in Q4. for shipment in the second half of next year, as well as, you know, orders that we've been receiving for our new products for our MOCBD, which goes into the compound semiconductor market bucket. And, again, on the bill-to-order type of production there, and we see that, you know, in the second half of next year.

Mark Miller | Analyst, Benchmark

Just one more question, if you permit me. Your data storage orders you received this quarter for IBD and web processing, was that from one customer or from multiple customers?

Bill Miller | Chief Executive Officer

It was from multiple customers.

David Daly | Analyst, Steelhead Securities

Thank you. Thanks, Mark.

Operator | Conference Operator

At this time, we have no further questions, and I would like to turn the call back over to Bill Miller for closing remarks.

Bill Miller | Chief Executive Officer

Thank you. Our results this quarter reflect strong execution and steady momentum across our business. We believe the pending merger with Excellus represents the next phase of that progress. It will broaden our technology portfolio, expand our market reach, and create multiple opportunities for revenue growth through cross-selling, integrated solutions, and accelerated innovation. We're confident in the path ahead, and we'll continue to update you as the process moves forward. Overall, we're delighted with the response from our stakeholders across the board, and are even more energized to deliver on the compelling merits of this strategic combination. Thank you to our employees for their hard work and dedication to Veco, And thank you to our customers and partners for their continued trust in VECO.

Have a great evening. Operator | Conference Operator

This concludes today's conference. Thank you for joining us. jsPDF 3.0.3 D:20260606090528-00'00'